SDVOSB Not Required To Inform Agency Of Veteran’s Death, Says Court

A SDVOSB was not required to inform a procuring agency that the service-disabled veteran owner had passed away following submission of the SDVOSB’s proposal, according to a recent decision of the U.S. Court of Federal Claims.

In NEIE, Inc. v. United States, No. 13-164 C (2013), the Court sharply criticized the U.S. Environmental Protection Agency for unjustifiably maintaining that the SDVOSB in question was required to inform the EPA of the veteran’s death, even though there is no such requirement in the regulations and the veteran’s death had no impact on the SDVOSB’s contract eligibility.

The NEIE case is not only a good reminder of when a SDVOSB must be eligible to receive a non-VA SDVOSB set-aside (typically, at the time of the initial priced offer), but a troubling example of an over-zealous procuring agency misinterpreting and misapplying the SDVOSB regulations to the detriment of an eligible SDVOSB.

The NEIE case involved an EPA SDVOSB set-aside procurement for emergency and rapid response services in New York and New Jersey. NEIE, Inc. timely submitted a proposal. At the time NEIE submitted its proposal, James Coleson, a service-disabled veteran, owned 100% of the company.

The EPA received four proposals for the SDVOSB contract. NEIE’s proposal was included in the competitive range, but the EPA initially awarded the contract to another company. However, after a successful size protest, that award did not proceed.

Several months passed without award. During that time, James Coleson died. NEIE’s ownership transferred to his son, Chris Coleson, who is a not a service-disabled veteran. The EPA finally awarded the contract to NEIE.

A competitor filed a protest, challenging NEIE’s status as a SDVOSB. Among its allegations, the competitor argued that James Coleson had died before award of the contract. In response, NEIE pointed out that under the SBA’s SDVOSB regulations, eligibility for award is based on the date of the submission of proposals, not the date of award. The SBA agreed, and issued a decision finding NEIE to be an eligible small business.

Barring an appeal to the SBA Office of Hearings and Appeal, the SBA’s decision should have ended the matter. Instead, the EPA issued a decision finding NEIE to be “non-responsible” and thus ineligible for award. The crux of the EPA’s non-responsibility determination was that NEIE had not informed the EPA of James Coleson’s death. The Contracting Officer then referred the matter to the EPA’s suspension and debarment division, which proposed NEIE for debarment.

The EPA ultimately terminated the proposed debarment, but refused to award the SDVOSB contract. NEIE then filed a complaint with the Court seeking relief. The Court agreed that the EPA had far overstepped its bounds.

The Court wrote that in its determination of non-responsibility, the EPA “characterized NEIE’s handling of James Coleson’s death as a vast conspiracy to mislead the EPA . . ..” However, the EPA’s perceived conspiracy was “deeply flawed” because “[n]othing in the Administrative Record nor anything cited to by the CO gives credence to the serious charge that NEIE ‘knowingly and intentionally misled’ anyone.” The Court continued (citations omitted):

NEIE had no reason to mislead the EPA about the death of James Coleson because, as confirmed by the SBA in resolving the Guardian protest, the FAR only requires that a contractor meet the eligibility requirements for an SDVOSB at the time of offer. NEIE unquestionably was controlled by James Coleson, a service-disabled veteran, at the time of its offer. The CO pointed to no evidence whatsoever suggesting that NEIE made any offers for SDVOSB set asides after James Coleson’s death and, in fact, the Administrative Record contains evidence to the contrary suggesting that NEIE took proactive steps to ensure compliance with relevant requirements by declining to bid on other SDVOSB set-asides.

The Court pointed out that James Coleson’s death had been widely covered by local media, contradicting the EPA’s assertion that NEIE had attempted to keep it secret–and calling into question whether the EPA actually knew of James Coleson’s death before the award to NEIE. In any event, the Court wrote, “NEIE had no legal duty to disclose the death of James Coleson to the EPA, because his death was immaterial to NEIE’s performance of the SDVOSB Contract.” The Court held that the EPA’s non-responsibility determination lacked a rational basis.

Although the Court agreed with NEIE on nearly every issue, the EPA had informed the Court that it had canceled the solicitation for the emergency and rapid response services contract. The Court wrote that the cancellation appeared “pretextual” to avoid award to NEIE. Nevertheless, the Court wrote, “[t]he court . . . cannot compel the EPA to award NEIE the SDVOSB Contract.” The Court ordered the EPA to pay NEIE’s bid and proposal costs, and NEIE may be able to recover attorneys’ fees under the Equal Access to Justice Act. Unfortunately, though, NEIE did not get the contract.

The NEIE case is an important reminder that for SDVOSB set-asides under the SBA’s rules, eligibility is determined at the time of award. More than this principle of law, however, the NEIE case is a troubling example of an overzealous agency run amok. Here, the EPA essentially invented a new SDVOSB rule–namely, that NEIE was required to inform the agency, after proposal submission, of the veteran’s death–and not only withheld the contract on the basis of its invented rule, but even proposed NEIE for debarment. By going to the Court, NEIE recovered its good name, but not the contract it fought so hard to win.

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